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Dow Tumbles 800 Points As Bond Markets Signal Recession

Stocks fell sharply on Wednesday amid troubling economic data that could signal a global recession.
Richard Drew
Stocks fell sharply on Wednesday amid troubling economic data that could signal a global recession.

Updated at 6:56 p.m. ET

Stocks plunged Wednesday on deepening worries over a slowdown in the global economy.

The Dow closed down 800 points, or about 3%. Investors have been whipsawed in recent days by mixed signals emerging from the Trump administration about tariffs and the escalating trade war with China.

The jitters were exacerbated amid worrisome economic data from two big countries. Germany posted negative growth in the latest quarter, and China's growth in industrial output fell to a 17-year low.

An even bigger worry: The yield on the benchmark 10-year Treasury note fell below 2-year Treasurys for the first time since 2007. In other words, you would get a higher interest rate for government debt that matures in two years than in 10 years.

Such an inversion in yields has a strong track record of predicting a recession, especially the longer it continues. Each of the last seven recessions, dating to 1969, was preceded by the 10-year falling below the two-year.

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, commented on Wednesday's bond market turmoil: "The periods when the yield curve inverts are when markets believe we are headed into a recession and either inflation will be lower and/or the Federal Reserve will be forced to lower short term interest rates."

On Tuesday, the Trump administration said it was postponing some of its new tariffs on Chinese imports. The Office of the U.S. Trade Representative announced that 10% tariffs on certain popular consumer items — including cellphones, laptop computers, video game consoles, computer monitors and some toys, shoes and clothing — will be postponed until Dec. 15.

"What we've done is we've delayed it, so that they won't be relevant to the Christmas shopping season," President Trump told reporters.

The delays affect about $160 billion worth of imports, according to calculations by the advocacy group Tariffs Hurt the Heartland. Tariffs on an additional $112 billion worth of Chinese imports are still set to take effect on Sept. 1 as scheduled.

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Corrected: August 14, 2019 at 12:00 AM EDT
In previous audio and Web versions of this story, we said that China's industrial output fell to a 17-year low. In fact, it is the growth in industrial output that fell that low.
NPR correspondent Chris Arnold is based in Boston. His reports are heard regularly on NPR's award-winning newsmagazines Morning Edition, All Things Considered, and Weekend Edition. He joined NPR in 1996 and was based in San Francisco before moving to Boston in 2001.
As Senior Business Editor at NPR, Uri Berliner edits and reports on economics, technology and finance. He provides analysis, context and clarity to breaking news and complex issues.
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